How to Read a Profit & Loss Statement in 10 Minutes

A Profit & Loss Statement (also called an Income Statement or Statement of Activity for nonprofits) is one of the most powerful tools you have as a business owner or nonprofit leader. But let’s be honest—many leaders glance at it, feel overwhelmed, and move on. 

The good news? You can learn to read a P&L in 10 minutes or less. Here’s how: 

1. Start With Revenue 

This is the top line—the total money your organization brought in. 

• For businesses: product sales, service revenue, contracts. 

• For nonprofits: donations, grants, program income. 

Ask: Are revenues trending up or down? Are they aligned with expectations? 

2. Look at Cost of Goods Sold (COGS) or Direct Program Costs 

This section shows the expenses directly tied to delivering your product or service. For nonprofits, it may reflect direct program expenses. 

Ask: How much does it cost to deliver what we do? Is that sustainable? 

3. Check Gross Margin 

Gross Margin = Revenue – COGS 
This tells you how much money is left after covering direct costs. A shrinking margin may mean rising costs, pricing issues, or inefficiencies. 

4. Review Operating Expenses 

These are your overhead costs: salaries, rent, marketing, insurance, technology, etc. 

• For nonprofits: admin + fundraising expenses. 

Ask: Are operating expenses aligned with revenue growth? 

5. See the Operating Income (or Loss) 

This is the bottom line before taxes or non-operating items. It shows if the core of your business is profitable—or if your nonprofit is running in the black. 

6. Don’t Ignore the Net Income 

Net Income (the “bottom line”) = what’s left over. Positive means profit; negative means loss. For nonprofits, this is your surplus or deficit. 

Ask: Do we have enough cushion to reinvest in growth or sustain our mission? 

7. Compare Over Time 

A single P&L is just a snapshot. Compare month-to-month or year-to-year to see trends. This is where insights really happen. 

✅ Final Takeaway 

A Profit & Loss Statement isn’t just an accounting report—it’s a story of how your money is being earned and spent. 

When you know how to read it quickly, you gain the clarity to make smart, confident decisions. 

Need help turning your P&L into insights? That’s what I do. 
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